ING’s Frantisek Taborsky reports that the National Bank of Hungary held its base rate at 6.25% but signalled a dovish shift, with June cuts fully priced and markets now seeing a terminal rate near 5.25%. He expects a 25bp cut in June and possibly more, yet remains positive on the Forint, targeting EUR/HUF at 350 by mid-year.

NBH opens door to gradual easing

"The National Bank of Hungary held the base rate at 6.25% , matching expectations. Although we were confident in our prediction this time, we have many questions going into the June rate-setting meeting."

"Although a rate cut for June was already fully priced in before the meeting, there was a risk the NBH could push back against these expectations. Yesterday's meeting rather confirmed the market pricing for June and gives the green light for pricing more rate cuts over the course of the year."

"After the meeting, the market prices the terminal rate somewhere around 5.25% if we assume a return of the BUBOR premium to positive numbers, implying 100bp of easing from the current 6.25%."

"In our view, a persistent easing of risks, stabilisation of the forint, and yields at a favourable level could lead to a 25bp interest rate cut in June, followed by one or two further cuts."

"However, this should not derail the trend, with 350 EUR/HUF for mid-year in our forecast."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)